$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL NO. 20/2000
Reserved on: 1st August, 2013
Date of decision: 21st November, 2013
COMMISSIONER OF INCOME TAX ..... Appellant
Through Mr. Abhishek Maratha, Sr. Standing
Counsel.
versus
M/S ASSOCIATE TECHNO PLASTICS P. LTD.
..... Respondent
Through Nemo.
INCOME TAX APPEAL NO. 95/2002
CIT ..... Appellant
Through Mr. Kamal Sawhney, Sr. Standing
Counsel.
versus
M/S HCL EMPLOYEES & INVEST. CO.LTD ..... Respondent
Through Mr. Ajay Vohra, Ms. Kavita Jha &
Mr. Vaibhav Kulkarn, Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
ITA Nos. 20/2000 & 95/2002 Page 1 of 28
SANJIV KHANNA, J.:
Appeal by the Revenue being ITA No. 95/2002, which pertains
to Assessment Year 1989-90, was admitted vide order dated 8th July,
2005 for determination of the following substantial question of law:-
"Whether ITAT was correct in deleting
the addition of Rs.2,39,86,572/- being the
difference between the sale price declared
by the assessee and the market price of the
shares quoted at the recognised stock
exchange?"
2. ITA No. 20/2000 again by the Revenue relates to Assessment
Year 1989-90 and was admitted for hearing vide order dated 27th
August, 2001 for answering the following substantial question of law:-
" Whether the Tribunal was justified in
holding that Section 69B of the Income
Tax Act has no application to the facts of
the case?"
3. The respondent in ITA No. 95/2002 is HCL Employees and
Investment Company Limited (HEICL), whereas the respondent in
ITA No. 20/2000 is Associated Techno Plastics Private Limited
(ATPPL). In ITA No. 95/2002, the order passed by the Income Tax
Appellate Tribunal is dated 15th October, 2001 and in ITA No. 20/2000
the order passed by the tribunal is dated 4th May, 1999. We have heard
the two ITAs together in view of the order dated 8 th July, 2005 passed
in ITA No. 95/2002. We record and notice that facts are inter-twined
ITA Nos. 20/2000 & 95/2002 Page 2 of 28
and the questions raised relate to a transaction(s) in which both the
assessees were involved or connected. At this stage, we also record
that no one has appeared for the respondent-ATPPL in ITA
No.20/2000, though it is apparent that they are aware of the present
proceedings and were earlier represented by a counsel. However,
HEICL has been represented and have contested the present
proceedings.
4. ATPPL, it is claimed, had purchased 77929 shares of HCL
Limited, which were sold by HEICL. These shares were purportedly
purchased at the price of Rs.6.02 per share though the market price on
the date of sale, i.e., 16th December, 1988 was Rs.41/- per share, being
the quoted price on the recognised stock exchange.
5. HEICL had originally filed a return of income on 26th March,
1991 disclosing income of Rs.35,220/-. The return was processed
under Section 143(1)(a) of the Income Tax Act, 1961 (Act, for short)
and subsequently the said assessees involvement in question came to
the knowledge of the department and proceedings under Section 148 of
the Act were initiated. The Assessing Officer noticed that HEICL had
transferred 12,70,000 shares of HCL to 62 different persons at prices
varying between Rs.18.91 to Rs.6.02, between May, 1988 to
November, 1988. The Assessing Officer taking into consideration the
market price on different dates when the sale transactions were entered
ITA Nos. 20/2000 & 95/2002 Page 3 of 28
into and made an addition of Rs.2,39,86,572/- by bringing to tax the
difference between market price and the sale consideration as declared.
6. HEICL did not succeed in the first appeal but has succeeded
before the tribunal. We shall subsequently refer to the order of the
tribunal.
7. ATPPL for the Assessment year 1989-90 had filed its return of
income on 17th November, 1989, declaring income of Rs.10,28,136/-.
8. In the regular assessment proceedings, it was noticed that
investments of ATPPL had increased from Rs.13,85,359/- to
Rs.61,71,068/-. On query, it was explained that assessee-ATPPL had
purchased 3,90,181 equity shares of HCL Limited for Rs.41,26,362/-,
from different persons by way of private arrangements and no share
broker was involved in the said transactions. The Assessing Officer
took notice of these transactions and brought to tax an amount of
Rs.26,48,017/- on account of difference between the sale consideration
paid by the assessee and the quoted market price on the date of
purchase. The Assessing Officer invoked Section 69B of the Act.
These details are mentioned and recorded in the assessment order in
form of a chart, which is as under:-
"
Date Of Number Rate at Quoted Amount Name of
purchase of which price of seller
shares purchased Delhi
ITA Nos. 20/2000 & 95/2002 Page 4 of 28
Stock
Exchange
20.9.87 3500 20/- 20/- 70000/- Mr. Y. C.
Vaidya
20.9.87 4500 20/- 20/- 90000/- Mrs.
Prasanna
Vaidya
15.4.88 500 18/50 18/- 9248/30 Mr.
Gaurang
Gandhi
15.4.88 200 19/89 18/- 3978/- Mr. Rajiv
Dhupar
15.4.88 300 17/57 18/- 5270/95 R. Kumar
& Co.
8.9.88 30000 12/- 14/- 360000 Ashish
Vaidya
8.9.88 30000 12/- 14/- 360000 Shyamlee
Vaidya
8.9.88 143252 12/- 14/- 1719024/- Mr. Y.C.
Vaidya
8.9.88 80000 12/- 14/- 960000/- Mrs.
Prasanna
Vaidya
8.9.88 20000 12/- 14/- 240000/- Y.C.
Vaidya
(HUF)
16.12.88 77929 6/02 41/- 469143/- HCL
Employees
Investment
Co. Ltd.
"
9. AIPPL, however, succeeded before the CIT (Appeals), who held
that Section 69B of the Act was not applicable. Revenue preferred an
appeal before the tribunal but did not succeed.
10. At this stage, we may notice that the tribunal in the case of
ATPPL has not examined the factual aspect but has recorded a finding
ITA Nos. 20/2000 & 95/2002 Page 5 of 28
that Section 69B cannot be applied as the Assessing Officer had not
disputed that the actual sale consideration paid as disclosed by the
assessee. In other words, it was not the case of the revenue that the
assessee-ATPPL had paid higher sale consideration than one disclosed
by them. Reliance was placed by the tribunal on the decision of the
Supreme Court in K.P. Varghese versus Income Tax Officer, (1981)
131 ITR 597 (SC).
11. Facts have been discussed in detail in the case of HEICL. We
may note the facts as found by the tribunal. U.P. Electronics
Corporation Limited (UPLC), a State Government undertaking, was a
co-promoter of Hindustan Computers Limited alongwith Mircrocomp
Ltd. The principal promoters of Microcomp Limited were S.S. Nadar,
Arjun Malhotra and Y.C. Vaidya. At the time of incorporation of
Hindustan Computers Limited, UPLC owned 4000 shares of Rs.100/-
in Hindustan Computers Limited and the balance 36,000 shares of
Rs.100/- each were owned/held by Microcomp Limited/principal
promoters. Later on, Hindustan Computers Limited merged with three
other companies namely, Hindustan Reprographics Ltd, Indian
Computer Software Co. Ltd and Hindustan Instruments Ltd. to form a
new company HCL Limited. UPLC, however, did not want to
continue as a shareholder in the new company, HCL Limited. A
tripartite agreement dated 29th January, 1987 was entered into between
ITA Nos. 20/2000 & 95/2002 Page 6 of 28
UPLC, Microcomp Limited and Hindustan Computers Limited to the
effect that UPLC shall sell 4,000 shares of Rs.100/ each to Microcomp
Limited or their nominee for consideration of Rs.1.27 crores.
12. Subsequently and as per the tripartite agreement, SBI Capital
Markets Limited paid Rs.1.27 crores to UPLC on or before 31st
December, 1987. It appears that Microcomp Limited did not have
sufficient funds to make the said payment and they entered into an
agreement dated 28th February, 1987 with SBI Capital Markets Limited
for payment of the said amount to UPLC. This agreement was
between SBI Capital Markets Limited, Hindustan Computers Limited
and the three principal promoters. 4,000 shares were transferred and
registered in the name of SBI Capital Markets Limited.
13. In the meanwhile, Directors of HCL Limited, who were also
Directors in Microcomp Limited, negotiated with Citi Bank to take
over the loan granted by SBI Capital Markets Limited. Citi Bank made
payment of Rs.1.31 crores to SBI Capital Markets Limited and
discharged their dues/claims. SBI Capital Markets Limited, who were
the registered shareholders, in turn executed blank transfer deeds of the
shares of HCL Limited and gave the blank deeds and shares to Citi
Bank.
14. We note that the originally allotted 4,000 shares of Hindustan
Computers Limited pursuant to the scheme of merger/amalgamation
ITA Nos. 20/2000 & 95/2002 Page 7 of 28
had increased to 12,70,000 shares of Rs.10/- each in HCL Limited.
15. HEICL claim that they acted as trustees pursuant to the oral trust
and have sold these 12,70,000 shares on different dates to employees
of HCL and others as per details given below:
"
S NAME Share Rate Consider Date Mar Value Differen
L. Acce Rup of ket ce
N pted ees ation accept Rate as per between
O. ance as on value as
of date Market per mkt
offer of rate and
contr Rate actual
act consider
ation
recd.
vide
cheque/
draft
1 MR. S. 6000 12.0 72000.0 Sep-88 14.0 84000.0 12000.0
MIRTUNJA 0 0 0 0
YAN 0
2 MR. A.K. 2500 12.0 30000.0 1.11.8 24.0 60000.0 30000.0
DEY 0 8 0 0 0
0
3 MR. M.K. 2500 12.0 30000.0 Sep-88 14.0 35000.0 5000.00
DEB 0 0 0
0
4 MR. J. 2500 12.0 30000.0 Sep-88 14.0 35000.0 5000.00
VAIDYAN 0 0 0
ATHAN 0
5 MR. P.K. 2500 12.0 30000.0 Sep-88 14.0 35000.0 5000.00
BHALLA 0 0 0
0
6 MR. T.V. 2000 12.0 240000. Sep-88 14.0 280000. 40000.0
HOLEY 0 0 00 0 00 0
7 PROF. 1000 12.0 120000. Sep-88 14.0 140000. 20000.0
M.D.G. 0 0 00 0 00 0
KORETH
ITA Nos. 20/2000 & 95/2002 Page 8 of 28
8 MR. RAJ 2500 12.0 30000.0 19.9.8 15.0 37500.0 7500.00
SIROHI 0 0 8 0 0
9 MR. 5000 12.0 60000.0 Sep-88 14.0 70000.0 10000.0
YUVRAJ 0 0 0 0 0
BAHADUR
10 MR. A. 5000 12.0 60000.0 29.8.8 14.0 70000.0 10000.0
MOHAN 0 0 6 0 0 0
RAO
11 MR. S.V. 2500 12.0 30000.0 Aug- 14.0 35000.0 5000.00
SRIRAM 0 0 88 0 0
12 MR. C.R. 2500 12.0 30000.0 13.5.8 12.0 30000.0 0.00
SITARAMA 0 0 8 0 0
N
13 MR. ARUN 5000 12.0 60000.0 12.07. 14.0 70000.0 10000.0
DANG 0 0 88 0 0 0
14 COL. P.S. 2500 12.0 30000.0 31.10. 24.0 60000.0 30000.0
PENTAL 0 0 88 0 0 0
15 MR. N. 2500 12.0 30000.0 Oct-88 18.5 46250.0 16250.0
RAMDAS 0 0 0 0 0
16 MR. 2000 10.0 200000. 4.5.88 12.0 240000. 40000.0
ASHOK 0 0 00 0 00 0
SYAL
17 MR. P.N. 5000 12.0 60000.0 Aug- 14.0 70000.0 10000.0
JAIN 0 0 88 0 0 0
18 MR. 2500 12.0 30000.0 Oct.88 18.5 46250.0 16250.0
ASHOK 0 0 0 0 0
MALHOTR
A
19 Mr. S.K. 2500 12.0 30000.0 28.11. 42.0 105000. 75000.0
Khanna 0 0 88 0 00 00
20 Mr. T.S. 7500 12.0 90000.0 Oct-88 18.5 138750. 48750.0
Purushotham 0 0 0 00 0
an
21 Mr. Hari 1000 12.0 12000.0 7.11.8 31.0 31000.0 19000.0
Bhaskaran 0 0 8 0 0 0
22 Mr. B.S. 7500 12.0 90000.0 Sep-88 14.0 105000. 15000.0
Chandramurt 0 0 0 00 0
hy
23 Mr. A.K. 2500 12.0 30000.0 Sep-88 14.0 35000.0 5000.00
Jain 0 0 0 0
24 WG. CDR 5000 12.0 60000.0 Sep-88 14.0 70000.0 10000.0
A.K. Verma 0 0 0 0 0
25 Mr. Ravi 5000 12.0 60000.0 Oct-88 18.5 92500.0 32500.0
Thambooche 0 0 0 0 0
tty
26 Mr. P.K. 2000 12.0 240000. Sep-88 14.0 280000. 40000.0
Asija 0 0 00 0 00 0
27 Mr. R.P. 2500 12.0 30000.0 Sept- 14.0 35000.0 5000.00
Singh 0 0 88 0 0
ITA Nos. 20/2000 & 95/2002 Page 9 of 28
28 Mr. Brijesh 2500 12.0 30000.0 17.11. 35.0 87500.0 57500.0
Khanna 0 0 88 0 0 0
29 Mr. M.N. 5000 12.0 60000.0 Sep-88 14.0 70000.0 10000.0
Diwaker 0 0 0 0 0
30 Mr. Yogesh 2500 12.0 30000.0 Sep-88 14.0 35000.0 5000.00
Dayal 0 0 0 0
31 Mr. N.N. 5000 12.0 60000.0 Oct-88 18.5 92500.0 32500.0
Khurana 0 0 0 0 0
32 Mr. Sugata 2500 12.0 30000.0 Oct-88 18.5 46250.0 16250.0
Mitra 0 0 0 0 0
33 Mr. A.R. 2500 12.0 30000.0 13.10. 18.5 46250.0 16250.0
. Subramania 0 0 88 0 0 0
m
34 Mr. Ashok 2000 12.0 240000. Sep-88 14.0 280000. 40000.0
. Jain 0 0 00 0 00 0
35 Mr. J.K. 5000 12.0 60000.0 Sept- 14.0 70000.0 10000.0
. Talajia 0 0 88 0 00 0
36 Mr. C.R. 2500 12.0 30000.0 3.11.8 26.5 66250.0 36250.0
. Ramesh 0 00 8 0 0 0
37 Mr. N.K. 1000 12.0 120000. Oct-88 18.5 185000. 65000.0
. Bhatia 0 0 00 0 00 0
38 Mr. M.N. 7500 12.0 90000.0 Oct-88 18.5 138750. 48750.0
. Shah 0 0 0 00 0
39 Mr. P.R. 2500 12.0 30000.0 Oct-88 18.5 46250.0 16250.0
. Parasher 0 0 0 0 0
40 Mr. L.N. 2500 12.0 30000.0 Sep-88 14.0 35000.0 5000.00
. Vishwanatha 0 0 0 0
n
41 Mr. Rajinder 2500 12.0 30000.0 Sep-88 14.0 35000.0 5000.00
. Kumar 0 0 0 0
42 Mr. M.S. 2500 12.0 30000.0 Sep-88 14.0 35000.0 5000.00
. Mohod 0 0 0 0
43 Mr. S. 2500 12.0 30000.0 Aug- 14.0 35000.0 5000.00
. Ramaswamy 0 0 88 0 0
44 Mr. H.N. 5000 12.0 60000.0 Aug- 14.0 70000.0 10000.0
. Shanker 0 0 88 0 0 0
45 Mr. R. 2500 12.0 30000.0 Sept- 14.0 35000.0 5000.00
. Vaidyanatha 0 0 88 0 0
n
46 Mr. J. Vijay 5000 12.0 60000.0 Sept- 14.0 70000.0 10000.0
. 0 0 88 0 0 0
47 Mr. N. 2500 12.0 30000.0 Sept- 14.0 35000.0 5000.00
. Gunaseelan 0 0 88 0 0
48 Mr. M. 2000 10.0 200000. Aug- 14.0 280000. 80000.0
. Raghunanda 0 0 00 88 0 00 0
n
49 Mr. Prasant 2500 12.0 30000.0 16.11. 40.0 100000. 70000.0
. Chatterji 0 0 88 0 00 0
50 Mr. M.M. 2000 14.0 28000.0 Oct-88 18.5 37000.0 9000.00
ITA Nos. 20/2000 & 95/2002 Page 10 of 28
. Khanna 0 0 0 0
51 Mr. V.N. 2000 14.0 28000.0 Sep-88 14.0 28000.0 0.00
. Kaura 0 0 0 0
52 Mr. Sat 1000 14.0 14000.0 Sep-88 14.0 14000.0 0.00
. Saraf 0 0 0 0
53 CIFCO 2000 18.9 3782500 Sep-88 14.0 280000 -
. 00 1 .00 0 0.00 982500.
00
54 Mr. P.S. 1000 10.0 100000. Sep-88 14.0 140000 400000.
. Vishwanatha 00 0 00 0 0.00 00
n
55 Mr. T.C. 1000 12.0 120000. Sep-88 14.0 140000 200000.
. Prabhu 00 0 00 0 0.00 00
56 Mr. S. S. 1558 6.02 938284. Sep-88 14.0 218199 124371
. Nadar 57 00 0 8.00 4.00
57 Mr. Arjun 1558 6.02 938284. Sep-88 14.0 218199 124371
. Malhotra 57 00 0 8.00 4.00
58 Mr. Y.C. 7792 6.02 469143 Sep-88 14.0 109100 621863.
. Vaidya 9 0 6.00 00
59 Mr. D.S. 3896 6.02 234572. Sep-88 14.0 545496. 310924.
. Puri 4 00 0 00 00
60 Mr. S. 5000 14.0 700000. Sep-88 14.0 700000. 0.00
. Bhattacharya 0 0 00 0 00
61 Mr. Subhash 7792 6.02 469143. Sep-88 14.0 109100 621863.
. Arora 9 00 0 6.00 00
62 Mr. Ajai 3896 6.02 234572. Sep-88 14.0 545496. 310924.
. Choudhary 4 00 0 00 00
1270 1319049 182460 505550
000 8 00.00 2.00
16. The aforesaid chart also mentions the market value of the share
on the date, what the HEICL calls/states was the date of acceptance of
offer. This date of acceptance was not the date on which payment was
received from the buyer by HEICL. The Assessing Officer has taken
into consideration the date on which payment was received by HEICL
as the relevant date and accordingly had made addition of
Rs.2,39,86,572/-.
17. Sale consideration collected/received by HEICL of
ITA Nos. 20/2000 & 95/2002 Page 11 of 28
Rs.1,31,90,498/- on the sale of shares, it was stated was paid to Citi
Bank towards payment of the loan granted by them and their dues were
satisfied. HEICL claims that they only received trusteeship fee of
Rs.43,600/- for entering into these transactions. HEICL was neither
the shareholder nor had any other interest in the shares. Their role was
to solely sell the shares as trustees to the employees of HCL Limited,
in accordance with the directions of the settlers, i.e., the principal
promoters of Hindustan Computers Limited.
18. The Assessing Officer in the assessment order has held as
under:-
1. HEICL had purchased 12,70,000 shares for
Rs.1,31,46,898/- and sold them for Rs.1,31,90,498/-.
2. HEICL had sold 77,927/- shares to ATPPL @ Rs.6.02/-
per share as against the market price of Rs.41/- per share as per
data of the stock exchange.
3. The so-called oral trust in favour of HEICL was an
afterthought for the following reasons:-
(i) Promoter directors of HEICL, Y.C. Vaidya, S.S.
Nadar and Arjun Malhotra had resigned as directors of
HEICL and had become directors of ATPPL, to whom the
shares were sold.
ITA Nos. 20/2000 & 95/2002 Page 12 of 28
(ii) Ashim Kanth, attorney of Y.C. Vaidya and director
of ATPPL on oath was unable to state why shares
were sold at less than the market price.
(iii) The shares were sold to ATPPL on the directions of
promoter directors of HEICL for their personal
gains at prices much below the market price.
(iv) Dues of Citi Bank were liquidated by HEICL
through payments from their bank account on
different occasions. HEICL had deliberately
delayed filing of return for the assessment year in
question till 26th March, 1991, though their
accounts were purportedly audited in May, 1989.
They also delayed furnishing of information and
asked for repeated adjournments. Their books were
finally impounded by the Assessing Officer, Circle-
1(ii).
(v) As shares were sold at less than the market price,
this constitutes breach of trusteeship and also
results in violation of the provisions of the
Companies Act, 1956 as the transactions could have
been entered into only for the benefit of the
employees and not for the benefits of the promoter
directors.
4. The Assessing Officer worked out the market price of the shares
in the stock exchange as on 1st August, 1988, 6th December, 1988, 8th
ITA Nos. 20/2000 & 95/2002 Page 13 of 28
December, 1988 and 16th December, 1988 and accordingly held as
under:-
"
S.No. No of shares Date of Rate of Total
sold Sale Sale Amount
01 7500 1.8.88 14.00 105000
02 254500 6.12.88 18.91 4812595
03 412500 8.12.88 18.91 7800375
04 595500 16.12.88 41.00 24415500
1270000
37133470
The assessee has purchased these shares for a total
consideration of Rs.1,31,46,898/-. The difference
of the sale price and purchase price as discussed
above is treated as assessees income"
Thus, addition of Rs.2,39,86,572/- was made.
19. Commissioner (Appeals) while affirming the said order has
noted additional facts. Employees of HEICL had not purchased the
shares and the promoter directors had decided and allotted the shares
to persons of their choice. The shares had to be allotted to
employees of HCL Ltd. by 31st March, 1987, but no attempts were
made till April, 1988, when for the first time S.S. Nadar wrote
letters. Letters written to purported employees by S.S. Nadar did
not have dates and number of shares offered to the said persons had
not been disclosed. S.S. Nadar and Arjun Malhotra were allotted
1,55,857 shares each but the other promoter director Y.C. Vaidya
ITA Nos. 20/2000 & 95/2002 Page 14 of 28
was allotted 77,929 shares. Two other persons were allotted
1,00,000 shares each. 50,000 and 38,964 shares allotted to two
others. There was inconsistency in the sale price. S.S. Nadar, Arjun
Malhotra, Y.C. Vaidya and one D.S. Puri were allotted shares @
Rs.6.02 per share, whereas another person Vishwanath was allotted
shares at Rs.10/- per share, T.C Prabhu was allotted shares at Rs.12/-
per share and S. Bhattacharya was allotted shares at Rs.14/- per
share. 2,00,000 shares were sold to CIFCO on the same date at
Rs.18.9/- per share.
20. Commissioner (Appeals) held that the substance and not form
which was relevant and applying the test of human probabilities, the
tax authorities were entitled to look at the surrounding
circumstances and find out the reality. Addition of Rs.2,39,86,572/-
was correctly made by the Assessing Officer and the addition was
upheld in entirety.
21. Tribunal in the impugned order has held that HEICL was
incorporated as a ,,trustee to sell or distribute the shares of HCL
Ltd. which was earlier held by the principal promoters of
Microcomp Ltd., to the employees of HCL Ltd. as per
directions/instructions of the principal promoters of Microcomp Ltd.
HEICL never acquired title or ownership of the shares. This was
accepted and admitted by the Departmental Representative, who
ITA Nos. 20/2000 & 95/2002 Page 15 of 28
accepted the said legal position but had argued that HEICL was the
best person in whose hands addition could be sustained. This, as per
the tribunal, cannot be a ground to justify addition by treating the
difference between the market price and sale price as taxable income
in the hands of HEICL. The transaction was not sham and the
consideration mentioned was the actual sale consideration received
and to that extent there was no dispute. Revenue had not pleaded or
argued that any consideration over and above the declared
consideration was received by HEICL. HEICL could not have
acquired ownership title as no payment was made by them from
their own resources or by way of raising loan. As title of the shares
never vested with HEICL, they were mere custodian of the shares,
who had to distribute the shares. The shares were not registered in
the name of HEICL. The principal promoters had paid fee of 3.5%
to SBI Capital Markets Limted. HCL Ltd. had raised a loan from
Citi Bank against pledge of shares and on the basis of the guarantee,
loan was granted. Interest on loan was debited to HCL Ltd.
22. We have considered the contentions of the Revenue in this
appeal. In spite of certain gaps and doubts/suspicion, we do not
think that there are sustainable reasons or grounds to hold that the
impugned order passed by the tribunal in the case of HEICL is
perverse and contrary to evidence on record. The primary
ITA Nos. 20/2000 & 95/2002 Page 16 of 28
contention of the Revenue is that the so-called oral trust, under
which the shares were sold, is sham. HEICL could not have sold or
transferred the shares. The fact is that the shares were sold and
transferred and HEICL had acted as a ,,trustee. The said
transfers/sales were made between the period 1 st August, 1988 to
16th December, 1988. The sales were made as many as to 62 parties
as per the details mentioned in paragraph 15 above. The sales were
duly recorded and there is no allegation that money or under table
consideration was paid. There is no such finding by the Assessing
Officer and the tribunal has categorically stated that there is no
evidence or material to the said effect.
23. In fact there is contradiction between the contention and the
argument of the Revenue. If we accept the contention that HEICL
did not have any right to sell the shares or deal with them, then it is
obvious that no addition or income can be made in their hands.
They were not the beneficiaries. Further, once consideration
received is accepted as the actual amount paid, there cannot be any
notional addition to the income of HEICL on the ground that they
could have and should have received the market price. It is obvious
that the shares were not transferred and sold for commercial
considerations but at the behest and at the interest of the promoter
directors of Hindustan Computers Limited as well as Microcomp
ITA Nos. 20/2000 & 95/2002 Page 17 of 28
Ltd. But there is no provision or mandate in law, under which
concession or difference can be taxed as deemed or notional income
in the hands of HEICL.
24. HEICL, which was incorporated on 29th December, 1987 as
per the memorandum, had the following main objects:-
"To subscribe to or purchase as trustee shares,
debentures, stocks, bonds and other securities
or to act as a trustee of or for shares,
debentures, stocks, bonds and other securities
to be held by or for the benefit of any person or
class of persons or to be held by or for the
benefit of employees of any company including
any directors holding a salaried office or
employment in any company."
25. Learned counsel for the respondent-assessee has also rightly
drawn our attention to the tripartite agreement dated 28th February,
1987 between SBI Capital Markets Limited and the principal
promoters and Hindustan Computers Limited in which it was
stipulated as under:-
"(12) One of the conditions on which SBICAP
agreed to purchase the said shares from UPLC
at the request of the Principal Promoters is that
the Principal Promoters shall arrange that the
said shares of the Company or the shares of
HCLL allotted to SBICAP on amalgamation in
lieu thereof would be transferred to the said
employees on payment of Rs.1,27,00,000/- on
or before 31st December, 1987.
XXXXX
ITA Nos. 20/2000 & 95/2002 Page 18 of 28
SBICAP shall acquire the said shares of the
Company for the purpose of ultimately
transferring the same or the Shares of HCLL an
allotted in lieu thereof (as the case may be) to
the employees of HCLL or the Company as
hereinafter provided on receipt inter alia of the
sum of Rs.1,27,00,000/- (Rupees one crore
Twenty Seven Lakhs only) for such transfer.
XXXXX
(c) That on SBICAP holding HCLL shares
the employees of HCLL shall purchase the
shares held by SBICAP at or for the price of
Rs.1,27,00,000/- plus carrying cost on or before
the 31st December, 1987;
(d) That if the said Scheme (with or without
modifications) is not sanctioned, then the
employees of the Company shall purchase the
shares held by SBICAP of the Company at or
for the price of Rs.1,27,00,000/- plus carrying
cost;
XXXXX
In consideration of SBICAP agreeing to enter
into this arrangement and acquiring the shares
of the aggregate value of Rs.1,27,00,000/- the
Principal Promoters jointly and severally shall
immediately on the execution of these presents
pay to SBICAP a fee calculated at the rate of
3.5% of the purchase price of Rs.1,27,00,000/-.
6. In addition to the fee mentioned in
Clause 5 above, the Principal Promoters shall
jointly and severally pay to SBICAP a gross
carrying cost of 18% per annum from the date
hereof upto the date of realisation by SBICAP
of the sum of Rs.1,27,00,000/- (Rupees one
crore and twenty seven lakhs) payable by the
said employees or the proposed trust as
hereinafter mentioned as the case may be. The
ITA Nos. 20/2000 & 95/2002 Page 19 of 28
said amount of carrying cost shall be reduced
by the gross dividend that may be declared by
either the Company or HCLL and paid to
SBICAP on or before 31st December, 1987.
The said sum shall be paid prior to the
execution by SBICAP of the relevant Transfer
Forms.
7. The Principal Promoters as the
Promoters and Directors of HCLL guarantee to
exchange and/or issue 12,70,000 Shares
equivalent to 4000 equity Shares of the
Company of SBICAP immediately on the
Company, HRL, HIL and ICSCL or the
Company alone shall merge with HCLL.
8. The Principal Promoters hereby
guarantee that the said Shares or the Shares of
HCLL (as the case may be) shall be purchased
by the said employees through the Principal
Promoters on or before 31st December, 1987,
time being of essence. If the same are not
purchased by the employees represented by the
Principal Promoters, the Principal Promoters
guarantee to acquire the said Shares at or for
the price of Rs.1,27,00,000/- in trust for and on
behalf of and for the benefit of the employees
of the Company or of HCLL as the case may
be. SBICAP shall execute the Transfer Forms
on receipt of the said sum of Rs.1,27,00,000/-
and other amounts as mentioned herein.
9. If the principal promoters fail to arrange
for purchase of the Shares as mentioned in
Clause 8 hereof on or before 31st December,
1987, as provided herein, it shall be at the
option of SBICAP after giving one month's
grace period to the Principal Promoters to sell
the Shares at such price and to such persons or
body corporate and/or to deal with the Shares in
such manner as SBICAP in its sole discretion
shall deem fit."
ITA Nos. 20/2000 & 95/2002 Page 20 of 28
26. The agreement with Citi Bank has not been placed on record
and it appears was also not filed before the tribunal. The clauses
therein are not known. The Assessing Officer also did not call for
the said agreement and the same is not referred to in the assessment
order. The date on which payment was made to SBI Capital
Markets Limited is not indicated or stated in the Tribunals order
and is not on record.
27. It is an undisputed position that the processing fee of 3.5%
paid to SBI Capital Markets Limited was paid by principal
promoters. The interest paid to Citi Bank was paid by HCL Limited
but the quantum thereof has not been indicated or mentioned in the
order of the tribunal.
28. It was stated before us that shares of HCL Ltd. were listed in
the stock exchange on 18th July, 1987 and it is apparent that share
prices of HCL Ltd. had jumped or escalated between September and
December, 1988. HCL Ltd. had declared dividend, it appears, in the
Annual General Meeting held in November/December, 1988, but the
details are not available and have not been ascertained by the
Assessing Officer, Commissioner (Appeals) or were put to and
agitated before the tribunal by the departmental representative.
Relevance of these details was not argued even before us. Similarly,
Y.C. Vaidya it has come on record was a non-resident living in the
ITA Nos. 20/2000 & 95/2002 Page 21 of 28
United States. However, relevancy of these facts is not highlighted
or stated. If there was something more than what was stated or was
appearing on record, further investigation and inquiries were
required on the said aspect, but these have not been undertaken and
brought on record. On the aspect of transfer of 77929 shares to Y.C
Vaidya or ATPPL however, there are enquiries and this aspect is
being examined separately below while dealing with the case of
ATPPL.
29. What is clearly discernible from the facts stated above is that
the Revenue started inquiries but were not able to cut through and
ascertain affirmatively and conclusively whether there was any
clandestine objective and purpose in the entire transaction, whether
there was any motive or intention to evade or even avoid payment of
taxes, who was the actual beneficiary; the acquirers to whom the
shares were sold, Microcomp Ltd. or the promoter company of
Hindustan Computers Ltd. who had entered into an agreement with
U.P. Electronics Cooperation Ltd. etc. In fact, there are several
questions which remain unanswered and do raise needle of
suspicion; that there could be possibly an element to avoid or even
evade payment of tax or to lower the quantum of taxation etc.
Possibly the scheme or the plan could be to avoid legal and technical
problems as HCL Ltd. could not have acquired and dealt with the its
ITA Nos. 20/2000 & 95/2002 Page 22 of 28
own shares or could not have ensured purchase of shares at a
cheaper price by their promoter directors or the directors/officer in-
charge of the said company. Possibly, a case of deemed dividend in
the hands of the acquirers, who had procured shares at Rs.6.02/- per
share instead of market value of Rs.41 per share. From the
documents placed on record, it is evident that query with regard to
gift was raised by the Assessing Officer but he did not dwell and go
into the said aspect. (See reply dated 16th March, 1995 from R.
Kumar Jain and Associates Chartered Accountants to the Assessing
Officer). Yet there is another possibility that the HCL Ltd. had
decided to declare dividend and the same had to be paid to the
registered shareholders on the date of the closure of accounts and
SBI Capital Markets Limited was the registered owner. The book
transaction with regard to sale of shares in favour of ATPPL may
have been backdated to avoid legal complications and to ensure that
the dividend is paid and received by the said company. As Y.C.
Vaidya was a non-resident Indian there may have been prohibition
or requirement to obtain permissions etc. under the exchange
regulations or the requirement that the payment should be made in
convertible foreign currency. These aspects have remained
unenquired for reasons best know to the Revenue but it would not be
correct and proper to remand the case to the Assessing Officer stage.
ITA Nos. 20/2000 & 95/2002 Page 23 of 28
The matters pertains to the assessment year 1989-90 and it was an
obligation and duty of the Assessing Officer as an investigator to go
deep and thoroughly.
30. At this stage on mere suspicion, the matter cannot be remitted
to the Assessing Officer to conduct fresh inquiry without there being
any concrete foundation justifying and asserting a firm
apprehension. Even before us during the course of hearing, the
standing counsel for the Revenue did not press or make any
headway. The suspicions raised remained in the realm of
conjectures and surmises and do not have a firm basis. Revenue
should have ensured that investigations were conducted and
undertaken at the initial stage in detailed and proper manner. They
should not expect order of remand on mere suspicion without any
foundation or basis for the lapses on the part of the Assessing
officer, unless there is fraud, collusion or relevant facts have come
to the knowledge of the Revenue subsequently.
31. We would also like to refer to statement of S. Shankar. He
had stated that HEICL had purchased 12,70,000 shares of HCL Ltd.
in January, 1988 from SBI Capital Markets Ltd., but he could not
remember the exact date. He had stated that mode of payment was
cheque and funds were arranged by way of pledge loan from Citi
Bank. The said statement is factually incorrect and this is not the
ITA Nos. 20/2000 & 95/2002 Page 24 of 28
stand of the Revenue before us or in the assessment order. This
contention and our attention was not drawn to the said assertion
during arguments. This portion of the statement was not highlighted
and relied upon by the Revenue before the tribunal. Certainly Citi
Bank had granted loan to pay dues of SBI Capital Markets Ltd. S.
Shankar perhaps was not fully aware of the facts as he did not know
how the loan was repaid to Citi Bank and could not also tell why the
transfer of shares was not registered in the name of HEICL and the
shares had continued to be in the name of SBI Capital Markets Ltd.
32. This brings us to the appeal in the case of ATPPL. The entire
reasoning given by the tribunal to dismiss the appeal of the Revenue
is as under:-
"11. We have heard rival
submissions, perused the record, gone
through the orders of authorities below.
We have gone through the documentary
evidence to which our attention was drawn.
We have also looked into the case law as
cited by the rival parties. The admitted
position of fact that 77,929 shares of HCL
Ltd. were purchased by the assessee
company @ Rs.6.02 per share and seller
company M/s. HCL Employees Investment
Co. Ltd. has admitted to have sold these
shares at the said price to the assessee
company and the AO has not been able to
establish that anything more than what has
been admitted to have been paid and
received has passed hands in order to
invoke provisions of section 69-B. As
nothing has been proved to show that any
ITA Nos. 20/2000 & 95/2002 Page 25 of 28
other amount than admitted has been paid
by the assessee in order to buy 77929
shares of HCL Ltd. therefore, in view of
facts and circumstances, we are of the view
that CIT(A) was justified in deleting the
addition while applying the ratio of
judgment in the case of K.P. Varghese as
referred to supra. While confirming the
order of CIT (A) we dismiss the appeal of
the revenue. As a result, appeal of the
revenue gets dismissed."
33. We have noted above that 77,929 shares were allotted to Y.C.
Vaidya. These shares have been registered in the name of ATPPL but
without giving full details and particulars on how, the shares were
transferred by Y.C. Vaidya to the said company ATPPL. The
respondent-assessee in their letter dated 25th March, 1992 had stated
that these shares were transferred in the records of HCL Ltd. in the
name of ATPPL on 16th November, 1988 and they had also received
dividend declared in the Annual General Meeting of HCL held in
December, 1988, but they had recorded purchase of these shares in
their books on 28th February, 1989 but had received telephonic
information about registration of shares from HCL Ltd. on 24 th March,
1992. Sale consideration of these shares was paid on 9th March, 1989
by way of cheque of Rs.4,69,143/- by ATPPL.
34. Ashim Kanth, attorney of Y.C. Vaidya could not answer
several questions put to him in his statement recorded under Section
131 of the Act on the ground that only directors were aware about the
ITA Nos. 20/2000 & 95/2002 Page 26 of 28
relevant information/facts and could answer. S.Shankar, principal
officer and director of HEICL in his statement recorded on 24th March,
1992 had stated that 77,929 shares were transferred to ATPPL on 16 th
December, 1988 and they had received the consideration of
Rs.4,67,574/- by way of cheque but he was not sure as to the date on
which the payment was received.
35. To this limited extent, we remit the matter to the tribunal for
fresh adjudication in the two appeals as facts in this regard are not clear
and certainly have not been examined and gone into by the tribunal.
36. In view of what is being noted above, we have remanded the
transaction relating to Associated Techno Plastics (P) Ltd. to the
tribunal. To the extent permissible and proper, the tribunal can
examine the said question provided that the facts and materials are on
record.
37. In view of the aforesaid findings, the substantial question of law
mentioned above in ITA No. 95/2002 has to be treated as partly
answered in favour of the Revenue and against the respondent insofar
as transfer of 77929 shares by HEICL to V.C. Vaidya or ATPPL is
concerned, on which we have passed an order of remit to the tribunal.
However, on other aspects/transactions of HEICL, the appeal is
dismissed and the question of law is answered in favour of the
respondent-assessee and against the appellant-Revenue.
ITA Nos. 20/2000 & 95/2002 Page 27 of 28
38. In view of the aforesaid findings in ITA No. 95/2002, the
question of law mentioned in ITA No. 20/2000 has to be treated as
answered in favour of the appellant-Revenue and against the
respondent-assessee, but with an order of remit to the tribunal for fresh
decision. The tribunal will examine the issues/facts afresh without
being influenced by the earlier order but while keeping in mind the
observations made above. In the facts of the present case, there will be
no order as to costs.
(SANJIV KHANNA)
JUDGE
(SANJEEV SACHDEVA)
JUDGE
November 21st, 2013
VKR/NA
ITA Nos. 20/2000 & 95/2002 Page 28 of 28
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